With Indian Rupee (INR) under continuous pressure due to shrinking hard currency reserves with the Reserve Bank, rising current account deficit and borrowings abroad, it may be high time that the government and the central bank take a relook at the liberalised rules on foreign spending by resident Indians, without any further delay. Foreign expenditure by deep-pocket, fun-loving Indians seems to be going through the roof in last five years. Lately, Indians emerged as only second to their counterparts from China, the world’s biggest dollar-rich country outside the United States, to seek permanent US residency visas by investing each half-a-million dollars or more there.
Wealthy Chinese businessmen, mostly exporters, have been spending large sums to acquire real estates in the US for some years for permanent residency visas. The tactic is fast taking off with wannabe Indians, though not many of them make any contribution to this import-led country’s slow-moving export. These Indians are queuing up to invest $500,000 into the US to have an “investor visa”, known as EB-5. Many countries offer permanent residency visa — also called ‘Golden Visa’ — to foreigners against lump sum investment. Some of them even offer ‘Golden Passports’.
Thanks to the liberalised foreign exchange spending regime, rich Indians today are splurging like never before on foreign trips, on-cruise holidays, foreign studies even at undergraduate levels and foreign treatment, including optical, dental implants, chest ailment and cosmetic surgery. Ironically, India campaigns for ‘medical tourism’ offering affordable good treatment in the country to overseas patients. Although not many high foreign-spending Indians contribute to the country’s hard currency earnings, they find nothing wrong in indirectly splurging part of foreign exchange earned and remitted by thousands of poor Indian workers abroad, many performing under high personal risk, especially in West Asia, after surrendering their passports with foreign agents.
According to a World Bank survey, foreign remittances to India, last year, amounted to around $69 billion. Nearly 20 per cent of the amount were remitted by Indian workers based in the United Arab Emirates alone. The remittances from the US — mostly by techies — were the second largest, over $10 billion, followed by those working in Saudi Arabia, Kuwait, Qatar, the UK, Oman, Bahrain, Canada and Australia, among others. Almost 25 per cent of the total remittances by Indian diaspora are splurged by rich resident Indians. Under the liberalised regime, each citizen can also invest abroad up to $250,000 annually. The total expenditure abroad by Indians, last year, accounted for over 23 per cent of the country’s $48-billion current account deficit.
Such a liberalised out-bound remittance regime in hard currency starved India could be simply suicidal, especially when the country is heavily dependant on import of petroleum, natural gas and coal as well as modern armaments, in the midst of its growing trade gap. While nothing much can be done to contain the oil import, the government can work on an emergency footing to bolster hi-tech domestic defence production to gradually cut down on India’s import dependance. All other foreign exchange expenditures can be regulated. The country must work seriously to emerge as a major manufacturer, import substituter and exporter. India should emulate the Chinese model in this regard. Until then, the government should judiciously control foreign spending by individual Indians on good life.
Remittances from Indian diaspora are the single largest source of the country’s forex income. However, there is no guarantee the trend will continue for long. Political instability in West Asia, the largest base of migrant Indian workers, and tighter control of work visa regime in countries such as the US, EU, Canada and Australia could substantially impact on future foreign remittances. Also, growing outward remittances from India by overseas workers may reduce the advantage of India’s position in terms of net foreign remittances. The highly imbalanced foreign trade and investment policy with China is leading to growing Chinese working population in India. China could soon become a large source of outward remittances from India. Until 2016, China ranked fourth among countries listed for outbound remittances from India, after Bangladesh, Nepal and Sri Lanka. But, the situation is fast changing in favour of China.
India plays see-saw game with China on receiving foreign remittances. China had the highest foreign remittances in 2016 when India’s remittance inflows declined to $62.7 billion, a fall of 8.9 per cent over $68.9 billion in 2015. While remittances combine the single largest source of India’s foreign income, they form a minuscule portion in China’s forex earning. Interestingly, India is still short of the record $70.4-billion mark in remittances it received in 2014. For Kerala, remittances are estimated at 36.3 per cent of the net state domestic product and contribute significantly to household consumption. It would be wrong to delink the foreign spending entitlement of resident Indians in search of better life abroad with India’s own income from foreign trade and remittances.
Nantoo Banerjee is a freelance journalist. Views are personal.